Deck 1: Raising Capital

Question 1

Modern investment banking is made up of two parts:

A)the corporate business,and the sales and trading business.
B)the commercial banking,and the sales and trading business.
C)the commercial banking and the corporate business.
D)the investment consulting,and the corporate business.

Answer 1

A

Question 2

Which of the following is an example of institutional investors?

A)Central banks
B)Financial Services Authority
C)Pension funds
D)Manufacturing firms

Answer 2

C

Question 3

Which of the following is a difference between public securities and private financial instruments?

A)Public securities are high-risk investments,whereas private financial instruments are low-risk instruments.
B)Public securities can be traded on secondary markets,whereas private financial instruments are not traded on secondary markets.
C)Firms with public securities are not regularly audited,whereas firms with private financial instruments are annually audited.
D)Public securities are partially regulated by government agencies,whereas private financial instruments are completely regulated by different government agencies.

Answer 3

B

Question 4

Which of the following is true of equity holders and debt holders?

A)Debt holders have a contract specifying that their claims must be paid before the firm can make payments to its equity holders.
B)Payments to equity holders are tax-deductible expenses of the firm,whereas the payments to bond holders are not tax-deductible.
C)Equity holders cannot transfer their ownership interest to others,whereas debt holders can transfer their claims over the assets of the firm.
D)Equity holders have noting voting rights on policies related to dividends,whereas debt holders have can vote on dividend related policies.

Question 5

Which of the following is true of a bank-based system?

A)It is likely that poorly performing firms will be penalized through corporate takeovers.
B)Managers may have longer investment horizons and be less willing to take risks.
C)The ratio of the domestic deposits in banks to stock market size will be less than 1.
D)Financial markets take on the role of the main financial intermediary in the system.

Question 6

Write a short note about public and private sources of capital.

Question 7

What is Islamic financing?

Question 8

Explain the four main functions in the underwriting process.

Question 9

_____ permits the investment banker to request that more shares be issued on the same terms as those already sold.

A)Black shoe option
B)Overallotment option
C)Abandonment option
D)Replacement option

Question 10

_____,one of the functions of the underwriting process,involves working with the firm to develop the registration statement,and forming a syndicate of investment bankers to market the issue.

A)Origination
B)Distribution
C)Risk bearing
D)Certification

Question 11

In a competitive offering:

A)the underwriter agrees to buy the whole offering from the firm at a set price,and to offer it to the public at a slightly higher price.
B)the underwriter and the firm fix a price,and the minimum and maximum number of shares to be sold.
C)the firm negotiates the underwriting agreement with the underwriter.
D)the firm specifies the underwriting agreement and puts it out to bid.

Question 12

The trading of securities done by investment banks using their own funds is known as _____.

A)intraday trading
B)proprietary trading
C)scalping
D)naked trading

Question 13

In a market-based system:

A)banks actively monitor corporations and are often involved in long-term strategic decisions.
B)banks play a major role in facilitating the flow of money between investors with surplus cash and organizations that require funding.
C)managers of companies may have longer investment horizons and be less willing to take risks.
D)the variety of security instruments that are actively traded in the system will improve a firm?s risk management activities.

Question 14

Euromarkets refer to:

A)a consortium of the equity markets in Europe which formulates the regulations and code of standards of public firms.
B)a collection of large European banks that help firms issue bonds and make loans outside the country in which the firm is located.
C)a collection of large international banks that help firms issue bonds and make loans outside the country in which the firm is located.
D)a collection of international banks based on the Anglo-Saxon countries that help firms issue bonds and make loans outside the country in which the firm is located.

Question 15

Which of the following is an advantage associated with the private source of capital?

A)Privately placed instruments are highly liquid in nature.
B)Privately placed instruments are accurately priced since all information about the firm is available.
C)Privately placed instruments can be customized for individual investors.
D)Investor base of privately placed instruments will be wider than that of publicly placed securities.

Question 16

Market making requires that _____.

A)the investment bank reduce the arbitraging opportunities in the market
B)the investment bank accurately value the securities
C)the investment bank act as a dealer in securities
D)the investment bank act as an auditing agency of public firms

Question 17

A hedge fund:

A)takes deposits from individuals and corporations,and lends these funds to borrowers.
B)invests money in securities,property,and other assets to meet future insurance claims and hedge against any other uncertainty.
C)pools money from individual investors and other financial intermediaries to fund relatively small,new businesses.
D)pools savings from individual wealthy and professional investors to purchase securities using non-traditional investment strategies.

Question 18

How can ownership structure of companies affect its decision-making and corporate strategy?

Question 19

Which of the following countries is part of the BRIC economic grouping?

A)Russia
B)Canada
C)Italy
D)Bahrain